Will GSEs’ record-high capital requirements scare investors away?
By Hannah Lang
As soon as the Federal Housing Finance Agency re-proposed a capital framework for Fannie Mae and Freddie Mac, some observers warned that potential investors could be scared off by the high amount of loss protection the companies would have to hold. But others are suggesting that may be an overreaction. …“Whether or not [the GSEs] have to have that capital day one of being out of conservatorship or year three is a question they ultimately need to answer and haven’t yet,” said Karen Petrou, a managing partner at Federal Financial Analytics. …“Nobody will invest in anything unless they understand how much capital a company is required to hold because that determines ultimately the return on equity the investor wants to price,” Petrou said.